IR 35 Update

Many construction workers or professional services providers operate through their own personal service companies. HMRC have tried (with some success) to classify many of these as employment contracts rather than business to business relationships, as the tax paid on employment contracts is considerably greater.

Recently a building contractor won a case with HMRC which offers some clarification about how the rules should be followed.

In this case HMRC had to prove that the indications of employment existed in the hypothetical contract and they out-weighed the indications of self-employment. The judge helpfully summarised the various factors which pointed to employment or self-employment.

For employment:
•No substitution of person performing the work is permitted
•the employee takes no financial risk
•Safety equipment is provided by the employer

Against employment:
•The contractor was not controlled by the company any more than any other contractor
•the contractor had the right to refuse to work in different locations
•The contractor was paid a fixed rate per day
•There was no notice period
•No sick pay or holiday pay
•No employment benefits
•No expenses paid for travel or accommodation
•The contractor was not integrated into the company

The key element of the case demonstrates that one factor (such as substitution) should not outweigh all other factors, and the entire relationship must be considered in its entirety to determine whether someone is employed or a contractor.